Sector grows at fastest pace in a year, boosts hiring
Mumbai : The services sector returned to growth during June and registered the fastest rate of expansion in a year, supported by robust increase in new business orders, said a monthly survey.
The Nikkei/IHS Markit Services Purchasing Managers’ Index climbed to 52.6 last month, its highest since June 2017, from 49.6 in May. The 50-mark separates growth from contraction.
The recovery in services firms’ activity, along with a robust pace of manufacturing growth reported on Monday lifted the composite PMI to 53.3, its highest level since October 2016.
That points to a solid finish for the three months ending in June, the first quarter of this fiscal year, after the economy grew at its quickest pace in nearly two years in January-March.
“The service economy returned to expansion territory in June. Encouragingly, the latest performance was the strongest seen in a year, against a backdrop of improving demand conditions,” said Aashna Dodhia, Economist at IHS Markit, and author of the report.
A strong improvement in demand also encouraged firms to hire at a faster pace than in May.
A sub-index that tracks growth in output prices fell to its lowest level in more than a year, even as the rise in input costs slowed just marginally.
“Overall input costs rose at the strongest rate since July 2014, and amid a weak rupee and higher oil prices, inflation may remain elevated,” added Dodhia.
On the price front, input cost inflation remained solid overall, however, services providers were unable to fully pass on higher input costs to price-sensitive consumers.
“Overall input costs rose at the strongest rate since July 2014, and amid a weak rupee and higher oil prices, inflation may remain elevated,” Dodhia said, adding that given these circumstances, the chances of further monetary policy tightening have heightened.
In June, the Reserve Bank of India had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent. Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index that maps both the manufacturing and the services industry, rose from 50.4 in May to 53.3 in June.
The latest reading is the strongest since October 2016, indicative of a solid rate of expansion.
“The PMI data signalled the best improvement in the overall health of the economy since October 2016, propelled by solid growth in both the manufacturing and service economies,” Dodhia said.
